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The dwelling in question is a Townhouse in Boulder County, Colorado

I was the owner of a dwelling in Colorado when a fairly bad hail storm hit this last Summer. I received notice that there would likely be a sizeable special assessment due to the hail damage a week before before going on the market. We went under contract soon after listing. I notified my agent via email about the special assessment the day we went under contract. I told my agent to notify the buyer that I am willing to pay the assessment in full when it gets posted since it would occur after closing.

Fast forward to after closing and I find out that my agent never noticed the two emails I sent regarding the special assessment and took no action on it. I'm still willing to pay the special assessment. However, now I find that the new owner will be charged income tax on my payment to cover the special assessment. I call up the HOA and ask them to bill me instead but they say they cannot do that because we should have formalized an agreement to that effect at closing.

Is there any way I can compensate the buyer without incurring income tax for the buyer at this point? Maybe some way to refund part of the purchase price to offset the assessment cost?

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  • How much is the special assessment? – Hart CO Dec 19 '19 at 21:04
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    The assessment is under 15k, would it qualify as a tax free gift since it is under the federal limit of 15k? – Kadreal Dec 19 '19 at 21:13
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    That's what I was thinking. Who suggested it would be taxable income to the buyer? – Hart CO Dec 19 '19 at 21:22
  • The buyer was concerned that it would be considered taxable income – Kadreal Dec 19 '19 at 21:27
  • Wouldn't hail damage be covered under insurance? Normally the special assessment would only need to cover the insurance deductible. – TTT Dec 20 '19 at 16:33
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Generally, in the US, recipients are never responsible for tax obligations related to gifts - if the gift is taxable, it's the giver who is responsible. The giver needs to include the gift in their tax return appropriately on Form 709 if it was over the annual limit of $15k, which you've stated is not the case. So, effectively, the "gift" you will be giving this person is not taxable for either of you and doesn't even need to be reported.

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